Quantitative Macroeconomies with Heterogeneous Households
Federal Reserve Bank of Minneapolis Staff Report No. 420
Posted: 24 Jun 2009
Date Written: January 1, 2009
Macroeconomics is evolving from the study of aggregate dynamics to the study of the dynamics of the entire equilibrium distribution of allocations across individual economic actors. This article reviews the quantitative macroeconomic literature that focuses on household heterogeneity, with a special emphasis on the "standard" incomplete markets model. We organize the vast literature according to three themes that are central to understanding how inequality matters for macroeconomics. First, what are the most important sources of individual risk and cross-sectional heterogeneity? Second, what are individuals' key channels of insurance? Third, how does idiosyncratic risk interact with aggregate risk?
Keywords: Incomplete Markets, Inequality, Insurance, Idiosyncratic Risk, Redistribution
JEL Classification: E21, E24, E32
Suggested Citation: Suggested Citation